In Hong Kong, there is a general perception in the market that
deregistration is simpler, quicker and less expensive when
disposing a private limited company. TMF Hong Kong Corporate
Secretarial Director Frances Chan looks at the options.
A private limited company in Hong Kong (HKCo) can be disposed by
Members' Voluntary Liquidation
(MVL) under the Companies (Winding Up and Miscellaneous Provisions)
Ordinance (Cap 32), or
application for deregistration under
Section 750 of the Companies Ordinance (Cap 622).
According to the Hong Kong Companies Registry, and historically,
the number of de-registration cases far exceeds the MVL cases. The
chart below shows the number of dissolution by both the application
of deregistration and MVL.
Application for deregistration
Before making the application, a HKCo must comply with all of
seek approval from all of its
have never commenced operation, or
have ceased to carry out business for more than three months
have no outstanding liabilities
not be a party to any existing legal
not have assets consisting of any
immovable property situated in Hong Kong (if the company is a
holding company, none of its subsidiary's assets can consist of
immovable property situated in Hong Kong)
have obtained a confirmation from the
Commissioner of Inland Revenue that it can proceed with the
MVL is a process of winding up a solvent company. This means
that the company is in a net asset financial position, and is able
to pay its debts (present or future, known or contingent) in full.
The motion to wind up HKCo by MVL is proposed by directors and
approved by a special resolution of the members.
Outline of major procedures:
Note: The above is prepared on the assumption that the
liquidation process can be finalised within one year.
The best method can be different for each situation, as there
are advantages and drawbacks for both.
Compared with MVL, deregistration appears to be easier and
cheaper when disposing a HKCo. The deregistration approach is not
applicable to the HKCo unless it never commenced business, or
ceased business for more than three months and its balance sheet is
"cleaned-up" to nil liability prior to applying for
deregistration. Management needs to be careful when "cleaning
up" the remaining assets of the HKCo, because assets remaining
at the time of its dissolution are deemed to be bona vacantia and
shall vest in the HKSAR Government.
Deregistration cannot help return paid-up share capital to
members of a HKCo, as procedures prescribed under the Companies
Ordinance (Cap 622) must be followed in order to reduce capital. A
HKCo is obliged to comply with all relevant statutory requirements,
such as holding annual general meeting and filing annual return
with the Companies Registry, unless it has been formally
Deregistration causes great concern because an aggrieved person
can make application to the court to reinstate a HKCo within 20
years of its deregistration. Anyone in connection with the
application for deregistration, knowingly or recklessly, gives any
false or misleading information to the Registrar of Companies in a
material particular, will commit an offence and will be exposed on
either of the following:
conviction on indictment to a fine of
HK$300,000 and imprisonment for two years
summary conviction to a fine at level
6 (currently HK$100,000) and imprisonment for six months.
When a HKCo is no longer required, and in terms of time and
costs, dissolving it by MVL could be more efficient than arranging
for a capital reduction before dissolving by application for
Although MVL is more costly, it is generally considered to be a
clear-cut disposal method. Unless there is an act of negligence or
fraud, creditors may not be able to receive anything from the
liquidation if their claim is submitted to the liquidators outside
the time period prescribed in the notice to creditors, and after
the completion of liquidation.
There is a misconception that the deregistration process is
quicker than MVL. Provided that there is no unforeseen
complication, both of these options take approximately the same
time (normally six to nine months) to complete. Except for
obtaining a final tax clearance, the majority of the liquidation
process under MVL is under the liquidators' control, which
means the process can be expedited if required. For deregistration,
most of the processing time is taken by the Inland Revenue
Department as well as the Companies Registry for considering and
approving a HKCo's application. There is little room to
expedite the process if head office has a deadline to complete the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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